Iran-Contra and Black Monday

The Reagan administration's
most serious foreign policy problem
surfaced near the end of the president's second term. In 1987
Americans learned that the administration had secretly sold arms
to Iran in an attempt to win freedom for American hostages held
in Lebanon by radical organizations controlled by Iran's Khomeini
government. Investigation also revealed that funds from the arms
sales had been diverted to the Nicaraguan contras during a period
when Congress had prohibited such military aid.

The ensuing
Iran-contra hearings before a joint House-Senate
committee examined issues of possible illegality as well as the
broader question of defining American foreign policy interests in
the Middle East and Central America. In a larger sense, the
Iran-contra hearings, like the celebrated Senate Watergate
hearings 14 years earlier, addressed
fundamental questions about the government's accountability to the public, and the proper
balance between the executive and legislative branches of
government.

The United States suffered an economic setback on
October 19, 1987, so-called "Black Monday," when the value of stocks tumbled
22 percent -- immediately bringing back memories of the fabled
stock market crash of 1929, which had been followed by the Great
Depression of the 1930s. The causes of the crash included anxiety
about U.S. international trade and federal-budget deficits,
concern about the high level of corporate and personal debt, and
a new stock market innovation known as "program trading" in which
computers automatically ordered the buying or selling of a large
volume of shares when certain circumstances occurred.

Nevertheless, the nation recovered in a remarkably short time.
Although many Americans turned from the stock market to safer
forms of investment, a recession did not materialize. In fact,
economic growth continued, with the unemployment rate dropping to
a 14-year low of 5.2 percent in June 1988.